London's most expensive residential street in December, Campden Hill Square, where the average house price was £4.9m, according to Lloyds TSB. Photograph: Rebecca Naden/PA

House prices in London's glitziest districts will drop by up to 50% over the next five years if the eurozone collapses, according to research by City consultancy Fathom.

Wealthy European citizens have been pouring their money into Georgian townhouses and swish penthouses in the smartest parts of the capital, seeing London as a less risky place to keep their assets than Spain or Greece.

Fathom's report, In a Class of its Own?, says these "safe haven flows" have been "by far the most important driver" of the rise in prime London property prices since the mid-1990s – first in 1997-99, when the euro was founded and investors were uncertain whether it would succeed; and then since 2010, with the euro sovereign debt crisis.

The average price of homes across these areas is £1.2m – almost six times the national average. In the four years from late 2007, their value rose 30% faster than the London market, and 34% faster than the UK market.

However, the research suggests that if the single currency zone fell apart – as a growing number of economists are now starting to predict – sterling would be likely to rise sharply against other European currencies on the foreign exchange markets.

Prime properties would suddenly look far more expensive to foreign investors; and world share prices would plunge, eating into the wealth of the kind of footloose investors who frequent estate agents in Kensington.

And as the study suggests, "once the storm has passed and most currencies have depreciated, property in Paris, Frankfurt and Rome will start to look very cheap compared to prime central London".

The warning about a bubble in London's property hotspots came as Paul Krugman, the Nobel prizewinning American economist, attacked the coalition's austerity policies. Speaking on Radio 4's Today programme, Krugman, in London to promote his new book, said the government's plan was "failing dismally". Instead of cutting spending the Treasury should be increasing it by 2% of GDP.

"It is deeply destructive to pursue austerity in a depression," he said. "Give me a stronger economy and I'll turn into a fiscal hawk. But not now."

Britain's households remain deeply anxious about the economic outlook, according to the latest consumer confidence figures from research group GfK, released on Thursday. Its overall confidence index increased to -29 in May from -31 last month; but that was well below the long-term average before the euro crisis.

"While this rise is indeed positive, consumer confidence remains mired in the very negative position it has been in for almost 18 months," said Nick Moon, managing director of social research at GfK.